- Gold falls sharply to $2,296 in response to US data showing rising employment costs, indicating persistent inflationary pressure.
- The strengthening US Dollar and rising Treasury yields contribute to the decline in XAU/USD as the market anticipates the Fed's caution in adjusting rates.
- Upcoming economic events, such as the ISM manufacturing PMI and the Fed's policy decision, are highly anticipated by traders to know the direction of the market.
Gold prices fall below $2,300 on Tuesday as data from the United States (US) shows that employment costs are rising, putting upward pressure on inflation. Consequently, the US Federal Reserve (Fed) would have to be patient when it comes to lowering rates, as Fed Chairman Jerome Powell stated two weeks ago.
The XAU/USD pair is trading at $2,296, down more than 1.50% on Tuesday, amid rising US Treasury yields and a strengthening US Dollar. Data from the US Bureau of Labor Statistics (BLS) witnessed a jump in the Employment Cost Index (ECI) in April. Additionally, U.S. consumer sentiment continued to deteriorate, the Conference Board revealed in its April report.
Heading into the week, the US economic agenda will remain busy. However, traders will mainly focus on the ISM Manufacturing PMI, the Fed's monetary policy decision and the US Non-Farm Payrolls report.
Daily Market Movement Summary: Gold Price Lowers on High US Treasury Yields and Strong USD
- Gold's decline is due to rising US Treasury yields and weak US Dollar. The 10-year US Treasury bond yield has risen five basis points (bps) to 4.665%, providing a headwind for the gold metal. At the same time, the US Dollar, as measured by the Dollar Index (DXY), has regained the 106.00 milestone, rising 0.52% and trading at 106.48.
- According to the Bureau of Labor Statistics (BLS), the US labor cost index (ECI), which measures wages and benefits, rose 1.2% quarter-over-quarter after rising 0.9% at the end of 2023, beating forecasts from 1%. This would keep the Fed on hold due to fears that inflation would accelerate.
- US consumer confidence fell in April from 103.1 to 97, its lowest level since mid-2022, as Americans' opinion of the labor market and the outlook for the economy deteriorated.
- The US economy continues to produce mixed figures. Last week, the Gross Domestic Product (GDP) did not reach the expected level. Still, inflation data linked to the first quarter of 2024 raised the alarm that the price trend is changing upward, which could deter the Federal Reserve from relaxing its policy sooner than expected.
- On May 3, the US Bureau of Labor Statistics (BLS) will release nonfarm payrolls numbers for April, which are expected to come in at 243,000, down from 303,000 in March. The unemployment rate is estimated to remain at 3.8%, while average hourly earnings are likely to remain unchanged at 0.3% monthly.
- Data from the Chicago Board of Trade (CBOT) suggests that traders expect the federal funds rate to end 2024 at 5.035%, down from 5.050% last Friday.
Technical Analysis: Gold Price Falls Below $2,300, Eyeing $2,223
The bullish trend in the price of Gold remains intact, although the fall below $2,300 could open the door to a deeper correction. If sellers keep XAU/USD prices below the April 23 daily low of $2,291, it will clear the way to challenge the next cycle high-turned-support at $2,223. Once these levels are surpassed, the next target would be $2,200.
On the bullish path, if The next resistance would be the $2,400 level, followed by the April 19 high at $2,417 and the all-time high at $2,431.
Frequently asked questions about Gold
Gold has played a key role in human history as it has been widely used as a store of value and medium of exchange. Today, aside from its brilliance and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, as it is not dependent on any issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. Being a non-yielding asset, Gold tends to rise with lower interest rates, while the higher cost of money usually weighs on the yellow metal. However, most of the movements depend on the behavior of the US Dollar (USD), as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
